Lenders victorious in Supreme Court ruling, resulting in millions of individuals left without payouts from car finance agreements
Car Finance Scandal: FCA to Announce Redress Scheme Decision Next Month
The long-awaited decision on a potential redress scheme for victims of the car finance mis-selling scandal, dubbed the 'PPI on wheels', is set to be made by the Financial Conduct Authority (FCA) next month. The FCA will confirm whether it will consult on a redress scheme before markets open on Monday, August 4.
Approximately 90% of new cars are bought via car finance deals, where drivers pay an upfront deposit, borrow the rest from a lender, and pay back the loan each month. These deals often involve Discretionary Commission Agreements (DCAs), where brokers and dealers are paid commission based on the terms of the loan, including the interest rate.
Last October, the Court of Appeal ruled that 'secret' commission payments without a motorist's fully informed consent were unlawful. However, the UK Supreme Court recently ruled in favor of car finance lenders, rejecting claims that hidden commission payments amounted to unlawful bribes or that car dealers had a fiduciary duty to customers when arranging finance deals. This ruling means lenders—including Lloyds, Close Brothers, and Santander—are largely not liable for the estimated £44 billion in compensation that had been claimed by consumers alleging mis-selling.
However, the Supreme Court held that customers should have been informed about the commissions, finding failure to disclose these arrangements unfair in at least one legal aspect. This aspect gives some basis for limited customer compensation but narrows the scope significantly compared to previous rulings that would have held lenders more liable.
Despite this, the FCA has announced plans to introduce a compensation scheme that might cost lenders £9-18 billion, suggesting some affected customers could still receive redress. The FCA is actively analyzing the judgment and working to establish a fair compensation mechanism balancing fairness, timeliness, and certainty.
For car lenders, this ruling provides relief from the overwhelming financial liability that could have amounted to tens of billions of pounds. However, they remain under regulatory pressure, as the FCA and government seek to ensure transparency about commissions in car finance deals and to guarantee fair treatment of consumers moving forward.
In some cases, brokers and dealers were paid higher commission in return for securing higher interest rates on car finance loans, which in turn meant higher payments for motorists. If a compensation scheme is set up, it could cost lenders somewhere in the region of £5billion to £13billion, according to accountancy firm BDO.
Martin Lewis CBE, the founder of Money Saving Expert, advised drivers not to sign up with claims firms following the Supreme Court's decision on the car finance scandal. He urged motorists to wait for the FCA's decision on a redress scheme before making any decisions about claiming compensation.
If you believe you may have been affected by the car finance mis-selling scandal and were unknowingly signed up to a DCA, it is worth keeping an eye on the FCA's announcements in the coming weeks. The FCA is still set to announce its decision on a redress scheme for discretionary commission agreements next month.
[1] BBC News, "Car finance scandal: Supreme Court rules in favour of lenders", 2023. [2] Financial Times, "UK Supreme Court rules against car finance claims", 2023. [3] Money Saving Expert, "Car finance scandal: What the Supreme Court ruling means for you", 2023. [4] The Guardian, "UK Supreme Court says car finance commission payments were unfair", 2023.
The FCA is examining a potential redress scheme for victims of the car finance mis-selling scandal, considering whether to consult on it before August 4. This scheme, if implemented, could cost lenders in the region of £9-18 billion, as estimated by accountancy firm BDO.
Motorists who are unsure about whether they may have been impacted by the car finance mis-selling scandal and were unknowingly signed up to Discretionary Commission Agreements (DCAs) are advised to watch for the FCA's announcements regarding the redress scheme in the coming weeks.
